Why Dentists Are The Best Commercial Real Estate Tenants You Could Ask For

DentalEaseApril2021-Blog3

If you’ve decided to open a new dental practice, the next logical step in the process is finding a location for your office. 

During this process, you’ll likely find plenty of office spaces that could work; however, it will probably come down to location and, more importantly, price. 

To help you negotiate the best possible price, I’ve included several vital factors to consider in my new book, DentalEase: The Essential Guide to Building the Stress-Free and Profitable Dental Practice of Your Dreams. 

Before you begin negotiating, it’s essential to understand the value of a dentist to a landlord

Make sure you and your broker are familiar with the following attributes. It can save you thousands of dollars! 

Lowest Failure Rates

Bank of America statistics over the past ten years show 99.5% of dental practice loans have been repaid as agreed. 

Dentists have a failure rate for lender risk estimated at less than 0.5 percent nationally, while most other businesses have significantly higher failure rates. 

Once a dentist learns that they have one of the lowest failure rates for lender risk, they face great opportunity amidst many possibilities.

In the standard marketplace, there are some staggering statistics when it comes to failure in start-up businesses. 

Up to 20 percent of small businesses fail in their first year. 30 percent fail in their second year, and 50 percent of small businesses fail after five years. 

What is even more troubling is that 25 percent of contractors do not make it past the first year in the construction industry, and 65 percent do not make it past five years. 

Longevity

Dentists are excellent tenants. Many dentists stay in the same office for over 20 years. Having a dentist as a tenant is advantageous for a landlord instead of having the space occupied by a hair salon or a gym, for example. The reason is that dentists stay in their complex for a long time and are a solid, steady income source for their center. 

It’s not uncommon for the average dentist to stay in the same location for twenty or more years while the other tenants are like a revolving door. Who would a landlord rather have? 

Because the dentist and landlord enjoy a long-term relationship, the dentist is a much more valued tenant.

Investment

Another added value point is that dentists spend a significant amount of money on tenant improvements (TI’s). 

It’s not uncommon to spend $200,000 to $300,000+ for dental office improvements. Typically, dentists spend $100-$175 per square foot (the location, scope, and finishes greatly affect cost). In comparison, TI’s for other businesses cost $20-$80 per square foot.

Funding

Dentists can get 100 percent financing for their practice, while most other professionals need to invest 10-30 percent of their own money in obtaining a loan. Dentists generally have low default rates in comparison to other types of businesses. They are also known to have one of the highest credit ratings among professionals. 

Dealing with defaulting tenants can be a cost and organizational nightmare; therefore, landlords tend to favor businesses with generally low default rates.

Increased foot traffic

One of the biggest draws for having a dentist is that it draws foot traffic to a building or center. Traffic is helpful because it supports other businesses in the area, adding value to the building and other nearby businesses. 

When you begin negotiating with a landlord, it’s critical that you remember these important factors. Landlords know very little about the business of dentistry but are experts at lease agreements. 

Landlords will do their best to make you think you’re getting a good deal, but it’s up to you, the dental tenant, to know your value and how to play your cards right. By leveraging your value, you will be able to secure a location for a reasonable price. 

To learn more about why dentists make great tenants, download the first chapter of my book DentalEase: The Essential Guide to Building the Stress-Free and Profitable Dental Practice of Your Dreams. The first chapter is free to download and will give you even more insight into creating a successful dental practice.

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